Peter Van Onselen
Coronavirus Australia: Virus induced recession will require our political leaders to lift
Today’s national accounts data confirms what we already unofficially knew: Australia is in recession for the first time since the early 1990s. The longest run of economic growth is over, courtesy of the global pandemic.
What we are yet to find out is just how deep this recession will be. Today’s data is based on the months of April, May and June. It therefore doesn’t even include the impact of the stage four lockdown in Melbourne, crippling the economy of Australia’s second largest city.
A technical recession is when there are two consecutive quarters of economic decline.
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Australia is all but certain to be hit by a third when the next round of data is released three months from now. But what about the chances of this recession becoming a depression? The first since the 1930s.
Unlike a recession, exactly what constitutes a depression is less clearly defined. In broad terms it is a recession felt across nation state borders, over a number of years with a GDP decline of around 10 per cent or more.
In other words, it is an economic disaster of epic proportions.
If that happens, Australians and indeed the global community are in for a brutal decade ahead. Not only because of the difficulties people will face during the depression itself, but also because of what happens in the aftermath: The recovery would see persistent long term high unemployment levels. Business and consumer confidence would remain low for an extended period of time. Political extremism is likely to grow as communities fall apart and populations look for alternatives to the mainstream. Conflict may also ensue, like it did in the 1930s.
It is a frightening prognosis.
Even if Australia remains the lucky country during this sort of period, and does better than nations around us, a global depression would drag all nations down. Including ours. And if the depression gave way to global conflict Australia would inevitably be drawn into the fray.
But whether this recession becomes a depression or not, generations of Australians not used to tough times are about to experience something they perhaps never expected to. Something they may not be ready for.
The recession will harm various generational cohorts: older Australians will find themselves retiring with less savings than they might have expected to. Middle aged workers will face a new level of job uncertainty. And younger Australians will find even getting a job in the first place more difficult than they ever would have imagined it to be.
Equally, the political class will need to lift its standards if it is to fulfil its historic duty. Reform and skilful policy positioning will be necessary if government’s are to make the best of a bad situation. It won’t be enough for leaders to merely preside over the tough times and hope that the automatic stabilisers in the economy do their job and help edge the country towards recovery.
The risk is that our political leaders just aren’t up to the challenge. The Coalition can’t let itself become an old fashion conservative government unwilling or unable to embrace reforms. The base electoral success of merely presiding in office and defeating Labor at the ballot box would represent myopic short term thinking that would see Australia lose its competitive advantage globally, not to mention make any recovery slower than it otherwise should be. This happened when the Fraser government was in office and missed its chance to reform the national economy in the wake of the early 1980s recession.
Equally, Labor cannot let itself become wedded to old fashion policy scripts that defined the party a generation ago. For a start doing so could consign Labor to the wrong side of the treasury benches for a generation, perhaps even dividing the party in opposition, just as Labor was during the Menzies years. It must be prepared to challenge its past to shape the party’s future, like Bob Hawke and Paul Keating did in the 1980s.
Whatever happens one thing is certain: we are living through a period of profound change. Whether our leaders help shape that change, or are shaped by it, remains to be seen.
Peter Van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.
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